On April 2, the United States’ President Trump announced a reciprocal tariff policy, imposing additional 49% tariffs on Cambodia, 46% on Vietnam, and 34% on China. In response, shares of Shenzhou International fell by 14%, while Asics dropped by 10% during Asian trading.
Why it matters: The additional tariffs pose challenges for selected sportswear companies under our Asia coverage, including Shenzhou International, Amer Sports, and Asics. We expect Amer’s shares to react negatively to the news during US trading, following its peers. Shenzhou International, a key supplier for major sportswear brands, generates 17% of its revenue from the US, with most of its products manufactured in Vietnam. If Shenzhou shares the higher tariff costs equally with its customers, we estimate a 20% earnings impact in the worst-case scenario. u Amer derives 27% of its revenue from the US, while Asics generates 20%. However, both companies have US margins that are below group averages, a trend we expect to continue. As a result, we estimate the earnings impact will be capped at 15% for Amer and 10% for Asics.
The bottom line: We maintain our fair value estimates for all three names for now, given the uncertainty around the duration of these tariffs. However, if the tariffs become permanent, we anticipate negative impact on our valuations, in line with the projected earnings disruptions. For investors seeking relatively safer options, we recommend undervalued domestic-focused names, such as Anta Sports and Topsports, which are not exposed to US tariffs.
While tariffs may still exert an indirect effect on Chinese consumption, these companies remain better positioned overall. Despite the associated risks, we believe Shenzhou International offers a sufficient margin of safety at current prices. Shares are trading at 50% discount to our valuation, much greater than the maximum potential earnings decline of 20%. Over the past decade, leading sportswear brands have shifted much of their US sourcing from China to Southeast Asian countries such as Vietnam, Indonesia, Bangladesh, and Cambodia. As a result, all brands selling in the US are likely to face challenges, with additional tariffs expected to lead to some cost pass-through in the form of higher selling prices and lower sales volumes. For Shenzhou International, there are several strategies to mitigate the impact. As the world’s largest and renowned sportswear supplier, the company can diversify its order book by securing more business from non-US markets. This would reduce its earnings exposure to levels below even our worst-case assumptions, providing some degree of insulation against US tariffs.
Source: Morning Star